Somewhere along the way, a ton of debt became a good thing.

And spending money our nation simply doesn’t have, is likely to continue well into 2023.

Before COVID hit, total spending was just over $4.4 trillion. Now it seems there isn’t a spending bill that Biden won’t sign. This would mean that we keep pace with the staggering levels of $6 PLUS TRILLION that we saw in 2020 and 2021 – with absolutely no regard for the debt that’s being racked up while doing this.

What’s another trillion among friends?

(Side note: To pay back a trillion dollars, at a rate of one dollar per second… would take you 31,688 years.)

While Washington spends money like a sailor who’s just gotten into port… what does the stock market think of this madness?

Not much. In 2020 Veronique de Rugy and Jack Salmon wrote a policy brief outlining why Large Federal Debt has Negative Effects on the Economy.

In short. The government is forced to borrow more and more. The increased borrowing means that there is less money available to lend in general.

Interest rates go up and loans become expensive.

Then the men and women that actually drive the economy have a harder time investing in their businesses. Productivity goes down. Innovation starts to go away.

The growth potential for the economy starts to suffer.

And that’s just in the short term. If it continues, investors may start to wonder if a government can really pay the money back or even support the debt.

At some point, the whole thing just tips over.

Several economists estimate that the whole system starts to slide when the GDP to national Debt Ratio is at 90%. Currently the United States Government Debt accounted for 123.6% as of September 2022. (Here is where you can find the gory details for yourself.)

If there was in fact a default the consequences would be catastrophic. Moody’s estimated back in 2021 that there would be a 4% loss in GDP, almost 6 million jobs lost and an unemployment rate of almost 9%.

And the punchline? A $15 trillion loss in household wealth with a 30% haircut on stocks with the selloff that would surely ensue. (Here is where you can access the report.)

Yet we just. Keep. Spending.

(Reference this policy brief from the Mercatus Center at George Mason University for an extensive overview of this topic.) If you can follow it to the end you won’t sleep for a week.

Long story short: Get ready to sell and then hop on for a wild ride down the backside of this overbought and overvalued market. It’s already happening.

If you’re asking… “What on earth is ‘Liberal Spending’…

Liberal government spending refers to the idea that the government should actively invest in social programs and services, such as education, healthcare, and infrastructure, in order to promote the welfare of its citizens. While this approach may have certain benefits, it can also have negative consequences for the stock market.

One reason why the stock market may not like liberal government spending is that it can lead to higher levels of government debt. When the government spends more money on social programs and services, it often has to borrow money to finance these expenditures. This can lead to an increase in government debt, which can be a concern for investors. High levels of government debt can increase the risk of a sovereign debt crisis, in which the government is unable to meet its debt obligations. This can lead to a loss of confidence in the government’s ability to manage its finances, which can have negative implications for the stock market.

Another reason why the stock market may not like liberal government spending is that it can lead to higher taxes. In order to finance its social programs and services, the government may need to raise taxes on individuals and businesses. Higher taxes can reduce the amount of disposable income that individuals have available to spend, which can negatively impact the demand for goods and services produced by companies listed on the stock market. In addition, higher taxes on businesses can reduce the profitability of these companies, which can lead to a decline in stock prices.

A third reason why the stock market may not like liberal government spending is that it can lead to inflation. When the government increases its spending, it can lead to an increase in the supply of money in the economy. This can lead to higher prices for goods and services, which is a form of inflation. Inflation can be a concern for investors because it can erode the value of their investments over time. Inflation can also make it more difficult for companies to plan for the future, which can reduce the attractiveness of these companies to investors.

Finally, the stock market may not like liberal government spending because it can lead to increased regulation and interference in the private sector. In order to implement its social programs and services, the government may need to regulate the activities of businesses and individuals. This can lead to increased compliance costs for these companies, which can reduce their profitability. In addition, government interference in the private sector can create uncertainty for investors, which can lead to a decline in stock prices.

In conclusion, while liberal government spending may have certain benefits, it can also have negative consequences for the stock market. Higher levels of government debt, higher taxes, inflation, and increased regulation can all be concerns for investors and can lead to a decline in stock prices.

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